How Much Does a Good Boss Really Matter? A New Marketplace Podcast

Our latest Freakonomics Radio on Marketplace podcast is called “How Much Does a Good Boss Really Matter?” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)

LAZEAR: Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers, and it’s not so easy to tease out one effect from another.

So how can you measure the impact of the bosses? Data, people, data. And Shaw came up with a huge data set from a company that included roughly 23,000 employees and 2,000 bosses. From their paper:

Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

The podcast also includes a conversation we had a while back with a very different sort of boss: Joe Maddon, manager of the Tampa Bay Rays. He showed up briefly in our “How Much Does the President Really Matter?” podcast but here we have time for a more substantial conversation.

Finally, here’s an interesting related e-mail from a reader named Max Lotstein:

A friend of mine works for a company with an interesting way of rewarding its employees. Immediately after he was hired after graduating in May, my friend, Jon, was told, “Get ready for an awesome Christmas party!” And from what he told me, the party didn’t disappoint: it was phenomenal. After he related this story to me, I speculated that the over-the-top party, and its emphasis, were intentional, and part of a managerial strategy. Though the company could have redistributed the money for the lavish party (employees were flown in from all over the world, at great cost, among other things) and padded everyone’s salaries, that type of reward often goes unnoticed. Perhaps it’s like what Al Gore said in An Inconvenient Truth — that we are all frogs in slowly boiling pots of water, unable to recognize incremental changes [Ed.: see here]– and that by spending this money all at once, it creates a salient thing to recall whenever one considers the question “Does my company value me?”

Audio Transcript

Jeremy HOBSON: It’s FREAKONOMICS time. Every two weeks, we talk with Stephen Dubner, the co- author of the books and blog about “the hidden side of everything.” Stephen, it’s good to have you back.

Stephen J. DUBNER: Thank you, Jeremy. I would like to talk to you today, if I may, about bosses, and how much they actually matter.

HOBSON: All right – bosses. How much do they “matter?”

DUBNER: Well, here’s the thing: we know that a bad boss is a drag. But in terms of how good a good boss can be and how that translates into productivity – it sounds like an easy question, but it’s not. It takes an economist to dig into it. Here’s Stanford economist Ed Lazear:

Ed LAZEAR: “Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers and it’s not so easy to tease out one effect from another.”

DUBNER: So it’s a bit of a cause-and-effect riddle that you want to solve. The challenge here is to find some data that allows you to isolate and then measure the effect of the boss.

HOBSON: All right, so I’m waiting for the big answer here, Stephen. What is the data? What did they find?

DUBNER: The data they got was from a huge service company, which Lazear and his colleagues aren’t allowed to name because of the academic research agreement. But this company does a lot of different things – everything from running call centers to processing insurance claims and the data that the researchers got was extremely granular. They could really see individual transactions for more than 23,000 employees and 2,000 bosses. Now, Jeremy, here’s the best part: in this company, the typical employee switches bosses a few times a year depending on which project they’re working on. So it makes it possible to chart the impact of a given boss. Here is Kathryn Shaw, who is Lazear’s entrepreneurial co-author. She’s also an economist at Stanford:

Kathryn SHAW: “This data -- because it is computerized data and we’re just looking at the effects of workers moving between bosses -- it’s very difficult to screw that up.

HOBSON: OK, so we’ve got good data here, Stephen. We’ve got a lot of data here -- thousands of people. What did they find?

DUBNER: They found that a good boss matters quite a bit – more than they would have thought. The researchers argue that the better bosses at this company increased productivity for a given worker by about 10 percent. Here’s Ed Lazear again:

LAZEAR: “I mean, a 10 percent effect is a pretty big deal, especially when the

way that the boss is doing this is indirect. Indirect in the sense that the boss, in this

context, is not actually producing herself. What she’s doing is she’s actually helping

the subordinate be more productive.”

HOBSON: And can you take this data, Stephen, outside of the workplace setting with your boss-employee relationship and apply it to leadership in general?

DUBNER: Well, Jeremy, we’ve tried in the past to measure the effect and the influence of different, top-level leaders – CEO’s, baseball managers, even the President of the United States. And what you generally find – the data tell us -- that their influence is actually much smaller than people generally would imagine. Now, why? It’s hard to say. We don’t know. It may be just because bosses have more influence on an employee’s life than a CEO does. Or a President does, for instance.

For what it’s worth, Lazear and Shaw – both these economists have worked for Presidents as economic advisors. Shaw for Clinton and Lazear for the second George Bush. Lazear says that Bush was a pretty good boss.

LAZEAR: “He wanted to hear directly from us and hear what we had to say. His

view was that was both more effective in terms of communication, but also more

effective in terms of motivation.”

HOBSON: So for those bosses that are listening out there and want to emulate that – what can they do? Is there any advice from all you’ve learned?

DUBNER: Well, I wish there was a magic answer of some kind. We did ask readers on Freakonomics.com – bosses – to tell us what they’ve done that worked. We had one that was worth sharing. This is from a fella named Jim Helton, who runs an employee-benefits company. He argues that a little bit of humility – and humor – can go a long way.

Jim HELTON: “So what we have is a ‘Dumb Ass Award.’ We put it on your desk and you owned it.”

DUBNER: So, Jeremy, there you go. One way to be a better boss: just pass out the occasional Dumb Ass Award, and apparently everybody’s happy.

HOBSON: (Laughs) We need to start doing that at Marketplace. Stephen Dubner, Freakonomics Radio. He also puts out a podcast, which you can get on iTunes. You can hear more at Freakonomics dot-com. Stephen, we’ll talk to you in two weeks.

[MUSIC]

DUBNER: Hey podcast listeners. We’ve got a little bonus interview for you here. In the Marketplace segment you just heard, I mentioned that we’ve looked at the influence of other leaders, like CEO’s and baseball managers. So here’s one interview we did on that topic, with the intelligent and engaging Joe Maddon, who is manager of the Tampa Bay Rays. We spoke after the 2010 baseball season, when the Rays finished atop the American League East with 96 victories -- beating out, among other teams, the New York Yankees. Maddon is known as a manager who likes to tweak the conventional wisdom, who likes to use data to try to see around the corner. In the spirit of the bosses and employees we talked about in the Marketplace segment, let’s now hear Maddon talk about how he tries to influence his employees – also known as members of the Tampa Bay Rays.

DUBNER: Tell me this, Joe. What does a manager actually do?

Joe MADDON: Woof. What does a manager actually do?

DUBNER: Let’s put it this way, there are two groups of people, let’s say, people who follow baseball and people who don’t. For the people who don’t, they see a grown man, in a Little League uniform, sitting in the dugout, spitting out sunflower seeds. Saying ‘what the heck is going on?’

MADDON: (Laughs) Here’s what I think, I think we intellectualize the day. That’s what I try to do. As the day begins. In the morning, I get up at my pad down in Tampa and I get right to the computer and I just start reviewing some things. Just some statistical stuff that I get online. So I start playing the game in the morning and that’s just part of it. The other part is obviously dealing with the personalities, the conversations I may have to have during the course of that day. Whether it’s players, whether it’s front office, whether it’s dealing with the press. There’s so many different components to being a manager. But I think, for the most part, I think I have to intellectualize the day, from the moment I wake up and try to bring it all together because there are so many different hats that a major league manager does wear.

DUBNER: If you were looking for a parallel job to describe it, what would one be? We’ve actually talked about the parallels between the President of the United States and a baseball manager, right? Where you’re in charge, but on the other hand you can’t necessarily affect the outcome as much as you might like.

MADDON: Right, I mean, there’s a lot of other people involved in this and I think it’s kind of like you’re the overseer of what’s going on. I don’t know, you look at what the President does and obviously it’s a complex day. Or at least it looks that way from a distance. And ours is too, but it’s definitely more limited, I would think. We’re not dealing with the Middle East and Afghanistan, et cetera. We’re just dealing with Tampa versus the Yankees, possibly. But, how does it compare to other jobs? I just, like you’re saying, probably an upper management job in a situation where you really have to deal with a lot of different folks. And a lot of it has to do with your mind and how you’re thinking and the creativity and your ability to pretty much communicate your ideas.

DUBNER: How much do you think the manager actually matter when it comes to a team’s win-loss record?

MADDON: I think when you’re talking about a more veteran-laden team, I think the manager possibly may have less of an impact. Because you’re really going to permit these guys to go out there and play and try to stay out of their way as much as possible. They don’t really need as much guidance in-game. They may need some prior to the game and don’t be deceived there, either, because there are a lot of veteran players that are always seeking advice or counsel with managers or coaches, etc. But in-game, veterans pretty much like to be left on their own. I think that the team that doesn’t have as much veteranship among it is going to require more of an impactful manager. So I think that it depends on the style or the makeup of the team where a manager can have more or less of an impact.

DUBNER: You are known for thinking differently. For relying on numbers to dictate behavior. For thinking strategically in a way that a lot of people I think really just admire. So, of all the kind of moves that you make, what are some of the things that you’re particularly proud of?

MADDON: Well, a lot of this stuff that you’re talking about is generated from my front office. Andrew Friedman, our GM, has really opened my mind to a lot of different statistical thoughts or analysis that’s really helped me as a major league manager. So I think the difference with our group and a lot of other teams is the marriage between the front office and the group on field – the manager, the coaches and the players. There’s a real good connection there. When I first began it was very rare – if at all -- that you got any kind of aid in that regard from a front office down to the field level, whether it was crunching numbers or suggestions in any way, shape or form. I think the way game is going today, you’re going to see a lot more of that marriage between a front office and the manager’s office, where you’re going to get a lot of good information coming your way that you should be open to.

DUBNER: It sounds like you were a little reluctant or a little bit of a skeptic early on. How did you become a believer?

MADDON: No I wasn’t really. You know, back in the mid ‘80s, in my very rudimentary way, as hitting coach, I was really trying to understand numbers and how they would help an offensive player, or how to evaluate an offensive player better. I was never into batting average way back in the day. I was more into runs produced and walks vs. strikeouts and things of that nature. Slugging percentage was coming on board. I was trying to understand it back then. But since, there’s a lot more data available and the metrics that are presented to me prior to a game really takes a lot of complicated stuff and simplifies it. I’ve always been a fan. I just didn’t understand all of it in the beginning.

DUBNER: All right, so those are the inputs. What about the outputs? Do you see that I, Joe Maddon, am taking in the statistical robustness of all that’s here and I’m turning it into a couple more wins a year?

MADDON: You would like to believe so. I don’t really sit down and analyze that or make a mark after the game that ‘ooh, I really had an impact on that game.’ I’m sure that our guys upstairs might have a better idea of maybe the impact we’ve had maybe as a manager and coaching staff during the course of a game. I know this, too, in regards to all of this number crunching that we’ve talking about: I really try to avoid feeing a lot of that – or any of that -- to the players. You only give them information on a need-to-know basis. Some guys are able to handle more. Some guys really want to handle less, or nothing at all in regards to the kind of information you give to them. That’s the way the baseball player is. So, for me, it’s about taking all this good stuff and really trying to inundate myself and try to handle as much of it as I possibly can.

DUBNER: But wouldn’t you like your stat guys upstairs – wouldn’t you like to just go to them and say, ‘hey, guys – do your absolute best to feed into this computer everything you can to try to isolate how many games I won for us?’ Not from a selfish standpoint, but to say look, we’ve got this whole team of guys here who are trying to optimize our statistical approach to this game. To make our players play better. Let’s try to put a number on that.

MADDON: How about how many games I’ve lost also? I would be concerned about that, too. At end of game, I know when I’ve utilized information well. And I know, in my heart of hearts, how it played out and I thought that maybe I did have a positive impact on the game. And, for the most part, I’m able to think about that for a split second and move on. The times when I have the most difficulty is when I’ve probably made what I perceive to be the wrong decision, based on I did not utilize the information well enough. So that’s the part that lingers with me more is when I feel like I didn’t do as good of a job, because you are expected to do well on a nightly basis. You expect that from your third baseman, your starting pitcher, your bullpen guy. You’re looking for them to be almost perfect on a nightly basis. And you expect that from yourself, too. So I don’t really glorify in the better moments. I’m really more concerned about when I mess up.

I think Freakonomics Radio presents an intriguing question which has relevance to almost all forms of work where merit is based on some form of workplace hierarchy. However, I wonder about how valid a study can be when based on a fairly subjective set of words. This runs right down the lines of my “good” boss might be another’s “fair” boss. Just as one’s “fair” boss might be another’s “poor” boss.
In my experiences I feel I’m with many who have been fortunate enough to have great bosses as well as pained though dreadful bosses. In both experiences I would agree with Lazear in that a “good” boss leads to more productivity; however I just wish there was a better way to test it. The problem might stem all the way down to the idea that if one doesn’t like their job, they won’t enjoy their work, and even a “great” boss might come off as a “poor” one though the eyes of the disgruntled employee.

I think this is a great piece of research. Because the company somewhat randomly rotates bosses and employees (which is very unusual) is allows for some really strong inferences about causality. I am not aware of any other study that does this.

However, the conclusions that I would draw from the empirical results would be different from those drawn in the piece media and by the article.

The main question is: Does having a good boss make a big difference?
The Answer: According to the abstract for the article:(http://economics.uchicago.edu/pdf/lazear_101011.pdf)
“There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would
adding one worker to a nine member team.”

This means that a boss in the top half (how they define “Good Boss”) gets their workers to perform 11% better than a boss in the bottom half. That’s important, but less than you might expect given our focus on leadership. In comparison, an employee in the top half of the IQ
distribution usually performs about 50% better than one in the bottom half (if memory serves).

Now, the company in the sample is one that handles very routine, phone-based service. I could imagine that the effects of having a good boss would be higher in less standardized environments… where the technical infrastructure and bureaucracy serve as substitutes for
leadership.

The authors also show a “residual effect” of having a good boss on future performance (i.e. after the boss has left the workers continued to perform better for a while. The authors interpret this as reflecting that the key job of a boss is acting as a good teacher.

Perhaps… but given that most of the residual effect wears off relatively quickly (an indeed, only 14% of the “good boss” effect lasts more than a year: see footnote two in the above url, pg. 28)… my interpretation would again be different. Specifically, the results might be better explained as indicating that a good leader instills productive work habits and high expectations in employees. These are likely to last a while after the boss leaves, but not that long. In other words, I think any learning/teaching effects should have persisted… whereas good work habits would deteriorate more rapidly.

Given the experimental procedure described, i would have to make the same observation i make about pretty much all non-double blind studies, which is that there are confounding factors, ascertainable and unascertainable, that could just as easily account for all of the results. For instance, some managers might be in a position to get onto the more effective projects (through nepotism, their own insight, or some other means), which make their employees appear more effective either in terms of return on investment, or by allowing leverage of different technologies.

One angle I’d like to share, because I think is of utmost importance and defines a good boss, it is the “team productivity” rather than the individual productivity. a good boss brings the team together and assigns the right tasks to the right people, make sure that 1+1 =3, 2 to say the least but not less! I find it interesting that the article says good managers should be assigned to good workers, where I found from my own managerial experience that actually high achievers need space and they don’t like the boss breathing under their neck. I even let them deal straight with upper management and only step in if necessary. they still need the guidance of a good boss but much less than average or poor performers. I’d say if the manager succeeds in showcasing the great people as role models for “good” or average workers, and either manages up the bad ones or manages them out, the team will do wonders. I actually find motivating and engaging the average people to be the hardest, they are not too bad to be micro-managed and not good enough to be decently rewarded, especially in large corporates during the craze of slashing costs these days

“A small matter,” said the Ghost, “to make these silly folks so full of gratitude.”

“Small!” echoed Scrooge.

The Spirit signed to him to listen to the two apprentices, who were pouring out their hearts in praise of Fezziwig: and when he had done so, said,

“Why! Is it not? He has spent but a few pounds of your mortal money: three or four perhaps. Is that so much that he deserves this praise?”

“It isn’t that,” said Scrooge, heated by the remark, and speaking unconsciously like his former, not his latter, self. “It isn’t that, Spirit. He has the power to render us happy or unhappy; to make our service light or burdensome; a pleasure or a toil. Say that his power lies in words and looks; in things so slight and insignificant that it is impossible to add and count ‘em up: what then? The happiness he gives, is quite as great as if it cost a fortune.”